Stocks Perform Better if Women Are on Company Boards

Facebook, the world’s largest social networking service, appointed Chief Operating Officer Sheryl Sandberg as its first female director about a month after its May initial public offering. Photographer: Chris Ratcliffe/Bloomberg

July 31 (Bloomberg) -- Companies with women on their boards
performed better in challenging markets than those with all-male
boards in a study suggesting that mixing genders may temper
risky investment moves and increase return on equity.

Shares of companies with a market capitalization of more
than $10 billion and with women board members outperformed
comparable businesses with all-male boards by 26 percent
worldwide over a period of six years, according to a report by
the Credit Suisse Research Institute, created in 2008 to analyze
trends expected to affect global markets.

The number of women in boardrooms has increased since the
end of 2005 as countries such as Norway instituted quotas and
companies including Facebook Inc. added female directors after
drawing criticism for a lack of gender diversity. The research,
which includes data from 2,360 companies, shows a greater
correlation between stock performance and the presence of women
on the board after the financial crisis started four years ago.

“Companies with women on boards really outperformed when
the downturn came through in 2008,” Mary Curtis, director of
thematic equity research at Credit Suisse in Johannesburg and an
author of the report, said in a telephone interview. “Stocks of
companies with women on boards tend to be a little more risk
averse and have on average a little less debt, which seems to be
one of the key reasons why they’ve outperformed so strongly in
this particular period.”

Risk Aversion

Net income growth for companies with women on their boards
has averaged 14 percent over the past six years, compared with
10 percent for those with no female director, according to the
Credit Suisse study, which examined all the companies in the
MSCI ACWI Index. The net-debt-to-equity ratio at companies with
at least one female director was 48 percent, compared with 50
percent at all-male boards, and the study showed a faster
reduction in debt at businesses with women on the board as the
financial crisis and global economic slowdown unfolded.

While female representation increased to 59 percent last
year from 41 percent at the end of 2005, countries such as Japan
and South Korea are lagging behind the U.S. and Europe, which
has added female representation the fastest over the six-year
period.

Larger companies have a higher proportion of women on their
boards, as well as those in the health-care industry -- 73
percent have at least one female director -- and industries
close to consumers, the study shows.

Health-care and consumer companies “are slightly more
defensive companies anyway, but even within that we found that
stocks in the health-care sector and the consume-staples sector,
which had some level of gender diversity on the board, were
generally outperforming their peer group,” Curtis said.

Not Promoted

The materials and information-technology sectors have the
highest percentage of male-only boards, both at more than 52
percent, according the report.

“Traditionally some industries have just never really been
seen as the domain of a woman, like some of the mining
industries or heavy-capital goods industries,” Curtis said.
“Women haven’t generally been promoted through the ranks of
those industries and then made it up to board level.”

The group 2020 Women on Boards, which is pushing for 20
percent female directors by 2020, has identified more than 200
companies that lack a single woman on their board, including
Sarasota, Florida-based Roper Industries Inc.

Female Candidates

While Roper Industries, which makes engineering products
for the water, energy, transportation and medical industries,
doesn’t have an open slot for a director, the company is “more
than willing to consider female candidates for the board and
would be anxious to find one that would fit in,” Chief
Executive Officer Brian Jellison said in a telephone interview.

In the U.S., 36 percent of companies still have no women on
their boards of directors, according to a report by researcher
GMI Ratings on gender diversity released today. The average
corporate board has about nine members.

“Multiple academic studies have concluded that diverse
corporate boards exercise more diligent oversight,” Michelle
Lamb, author the study, said in a report. “They have better
attendance records than homogeneous boards, and they invest more
effort in auditing when the complexity of the business warrants
heightened scrutiny.”

Facebook, the world’s largest social networking service,
based in Menlo Park, California, appointed Chief Operating
Officer Sheryl Sandberg as its first female director about a
month after its May initial public offering.